Academia Sinica cuts growth forecast

UNCERTAINTY:：Low growth in wages, which limits spending, and lower government budgets, which keep public sector investment low, are two factors slowing growth

By Amy Su / Staff reporter

Wed, Jul 17, 2013 - Page 13

Academia Sinica yesterday cut its GDP growth forecast for Taiwan this year to 2.35 percent from a previous estimate of 3.05 percent in December, citing lower contributions from government spending and public investment.

The institute said raising the ceiling on national debt may be a solution to help revive the economy, which will give the government leeway to use debt-financing to boost domestic spending and investment.

However, since the tax burden will be heavier after raising the debt ceiling, consensus on the issue must be reached between the government and the public, the institute said.

It added that the government could encourage the private sector to participate in public infrastructure projects to offset sluggish public investment.

“Taiwan’s economy is on a modest recovery track, with high levels of uncertainty,” Academia Sinica economic research fellow Ray Chou (周雨田) told a press conference.

The 2.35 percent economic growth for this year forecast by the institute was slightly lower than the 2.4 percent expansion estimated by the Directorate-General of Budget, Accounting and Statistics (DGBAS) in May. The DGBAS is scheduled to announce initial growth results for the second quarter at the end of this month.

Peng Shin-kun (彭信坤), director of Academia Sinica’s Institute of Economics, said Taiwan’s GDP growth in the second half is expected to reach 2.54 percent, up from the 2.15 percent year-on-year expansion in the first half.

However, due to limitations on government budgets, investments from the public sector may continue to decline this year by 6.36 percent, the institute said in its report.

Peng said raising the ceiling on national debt may be a solution for Taiwan’s economy in the future, but the government would have to communicate well with the public over the issue first, before taking such action.

The institute said export growth momentum may remain sluggish this year. It forecast an annual growth of 4.93 percent in real goods and service exports this year because the global economic recovery is still facing difficulties.

Peng said local manufacturers should focus more on Southeast Asian markets in the future to diversify risks and lower over-dependence on the Chinese economy.

Meanwhile, lower growth in real wages has caused consumers to limit their spending and affected expansion of private consumption, causing annual growth in this sector to slow to 1.26 percent, the report’s data showed.

However, annual growth in imports of equipment reached 8.5 percent in the first half of this year, an indication that private investment — the major driver of the economy this year — may show a substantial increase this year.

The institute set its latest interval forecast for GDP growth this year at a level between 1.13 percent and 3.71 percent, with various global economic uncertainties to determine the trend in the future.

Growth momentum in emerging economies, the pace of the US economy’s recovery and the chances of the eurozone moving out of recession will be the three uncertainties affecting Taiwan’s economy this year, the institute said.